5 Benefits of Using Hard Money for Construction Loans

Finding the right financing for real estate projects can be overwhelming, especially when it comes to construction loans. Most traditional lenders find construction loans to be risky, meaning they spend a lot of time looking at each little detail of the project before deciding whether or not they’ll fund the deal. As you can imagine, this can be extremely time-consuming and may even delay your plans. So, would a hard money loan be a better option? Today, we’ll review why and how to use hard money for construction loans. 

Contents of This Article:

• 5 Benefits of Using Hard Money for Construction Loans
• Traditional Lending vs. Hard Money for Construction Loans
• Tips for Using Hard Money for Construction Loans
• Find a Lender for Your Real Estate Project Today

5 Benefits of Using Hard Money for Construction Loans

Hard money loans are asset-based loans secured by property, which makes them a great choice for funding new construction projects. Instead of diving into your entire financial history and requirements set by a traditional lending institution, Baltimore hard money lenders evaluate your plans for the project, ensure that you’re financially stable enough to pay the loan, and can usually get you funded within a week or two. Here are some of the main reasons investors like hard money for construction loans. 

• Fast Approval and Funding
• Flexible Loan Terms
• Easy to Qualify For
• Covers Land and Construction Costs
• Short-Term Borrowing Solution

Fast Approval and Funding

Your credit history and ability to repay debts matters with any loan you’re applying for. However, hard money lenders care more about the property’s value and the project than your credit score or financial history. As such, you’re usually able to get funded quickly–often within a week–which is great if you’re in a time crunch. 

Flexible Loan Terms

Unlike traditional loans with strict requirements, hard money lenders offer flexible loan terms to meet your project’s needs. Additionally, you can negotiate more regarding repayment schedules, extensions, or terms that align with your construction timeline. 

Easy to Qualify For

Since hard money loans are secured by property value, they’re more accessible to borrowers with less-than-perfect credit or unconventional financial situations. Instead of looking at your personal finances, hard money lenders spend more time looking at the potential of the construction project to ensure you’re able to repay the loan at the end of the term.

Covers Land and Construction Costs

Hard money loans can help you finance both the purchase of land and the construction process. This reduces the need for multiple loans, saving you time and providing a comprehensive funding solution for your project.  

Short-Term Borrowing Solution

Construction projects generally align perfectly with most hard money loan terms ranging from 6 to 24 months. That way, you’re not locked into a loan agreement for an extended period of time, and you can repay it once your project is complete, whether you refinance the loan or sell the property. 

Traditional Lending vs. Hard Money for Construction Loans

If you’re trying to decide whether to use a traditional loan or a hard money loan for your construction project, there are several things to consider. For instance, how quickly do you need the money? In most real estate transactions, time is a crucial factor–especially when it comes to new construction. That said, most hard money loans can be funded within a week, whereas it can take 30 days or more for a traditional lender to fund a loan. 

Another thing to consider is the type of loan structure you’re looking for. Most traditional lenders have set terms with little wiggle room for specific loan requests or flexibility. Generally, they only consider projects that meet their specific terms unless you have a long track record with them. On the other hand, hard money lenders often provide more flexibility when it comes to loan repayment terms. They also may be more willing to structure the loan to benefit both parties and provide repayment schedules that work with your timeline. 

Finally, you’ll want to consider your qualifications and approval odds. Since most traditional lenders have strict criteria for construction loans, it can be hard to get approved, even if your financial history is strong. However, hard money lenders can generally look further than your financial history and focus more on what you’re contributing to the project. They want to see that you have a well-thought-out plan and that you can pay off the loan when the project is complete. 

Tips for Using Hard Money for Construction Loans

Using hard money for construction loans can be a great choice if you need quick funding and flexible terms. However, you’ll want to do your research and manage the process carefully to help eliminate any risks. Here are a few tips to consider for a successful experience with your hard money loan.

1. Have a Plan- Before even applying for a loan, have a clear plan with timelines, budgets, and your projected after-repair value (ARV). This gives lenders a clear idea of what you’ll use the loan for and feel more comfortable funding your project.
2. Choose the Right Lender- You’ll want to research and compare lenders to find one with the best track record and terms. If you need financing for new construction projects, it’s best to find one that specializes in them.
3. Know Your Budget- To stay on track throughout your project, you’ll want to have a realistic budget. For instance, know your loan’s interest rates, origination fees, and other charges you might incur. It’s important to factor these costs into your budget.
4. Plan Your Exit Strategy- Since hard money loans are short-term financing solutions, it’s crucial to have a clear plan to repay the loan once construction is complete. For instance, most investors sell the property, refinance with another loan, or use rental income to repay the loan.
5. Maintain Communication- Communication is key when it comes to your relationship with your lender. Update them on your progress and any significant changes to the project. Keeping them in the loop helps build trust and may make them more accommodating if you need an extension.

Find a Lender for Your Real Estate Project Today

Want to use hard money for a construction loan? The first step is finding a lender that aligns with your timeline and goals. Remember, you’ll want to research different lenders and get multiple quotes before choosing one to work with. That way, you can find the best deal for your real estate project. 

If you’re looking for a lender near Baltimore, contact Maryland Hard Money Lenders today! Our team of lending professionals can help review your project and get you funded ASAP. Learn more about our lending process or fill out our loan application today!